How to Punish CEOs

I do not know whether the practice can be defined as torture under the Vienna Convention, and I am certain it is not mentioned in the Army field manual for the interrogation of suspects, but it is time to bring back the pillory.

Pillories are made of wood and they were used as a form of punishment in colonial times. They consist of two pieces of wood which are joined together by a hinge in such a way that three holes are created through which a prisoner’s arms and neck can be placed. They were placed in prominent public places but they are not physically painful. They inflict shame, not pain. You can find historical examples of pillories at Colonial Williamsburg, Salem, Massachusetts and various other locations.

It is time to place a new set of pillories in the middle of Wall Street. The titans of capitalism have no shame and it is the missing ingredient in all the various schemes for economic recovery.

First up would be Mr. John Thain, the former CEO of Merrill Lynch who spent $1.2 million of his troubled company’s assets on renovations for his office. Mr. Thain’s company no longer exists: It was bought by Bank of America at a bargain basement price because it was barely solvent. He says he plans to pay the money for his nifty office back. "It is clear to me that in today’s world it was a mistake," he told CNBC.

Actually, it was a mistake in yesterday’s world too, Mr. Thain. When your company is tanking, lavish expenditures on CEO perks is a mistake. And, it is shocking that he still has that kind of money to pay back. Surely some fiduciary responsibility to shareholders was ignored when he paid himself his enormous salary as well. Maybe he did not know his company was tanking, but such ignorance would raise a different, but no less fierce, objection to his salary. Nor, do I have any reason to believe he was merely incompetent. He was greedy and for that the punishment should be public shaming. Put him in the pillory for a few days and let others take note of the lesson.

The entire board of Citicorp should follow Mr. Thain into the pillories. They announced plans to go ahead with the purchase of a new $50 million corporate jet. You, dear reader, if you are an American taxpayer, are funding this request because the same Citicorp, led by the same board, received $50 billion in bailout funds last year. And, as a condition for further moneys from that bailout, executives should be required not only to fly commercial airlines like the rest of us but they should fly coach. I am sure they will love the ham and cheese sandwiches you can buy for $5.50. Exact change is appreciated.

Economists as a group should be next up. They continue to fill the airwaves with their prognostications, and rarely are these predictions accompanied by any admission that they are clueless. Or did I miss their predictions that this mess would be forthcoming. I seem to remember hearing just last summer, in a show leading up to the Beijing Olympics, how they were worried the Chinese economy would overheat. Ah, to have such problems. I will listen to the advice of any economist who begins his presentation by noting that the economy, like the weather, is a non-predictable phenomenon.

Whatever else caused the economic mess, the current problem is essentially psychological. We know that we got into this mess because we lived beyond our means. So, in their wisdom, the American people are restraining spending and saving more, which makes sense personally but is not what the economy needs. Equilibrium will come when what the economy needs and what makes sense for individuals are aligned. What is needed is confidence that CEOs and bankers will act responsibly and be ashamed when they put their personal comforts ahead of the interests of their shareholders. It is time to bring back the pillory to reintroduce a little shame into the calculations of our corporate leaders. They’ve earned it.

Comments

Anonymous | 1/29/2009 - 10:50am

Mr. Cook, Your statements puzzle me. It is the private sector that is demanding bailouts from the government, and it seems that the government is making a pretty conscientious effort to avoid long-term control or nationalization. And right now I bet there are a lot of private investors who wish the companies they sunk their retirement funds in were as well managed as Social Security. Sadly too many entrepreneurs seem to want one-way socialism: freedom from taxes and regulation when they are making huge profits; immediate bailouts when their blunders come back to haunt them.

For the government to dictate business decisions is one more step toward U.S. socialism. It is not the government's business what the FREE ENTERPRISE system does. The USSR, Cuba, North Korea dictate economic decisions; China is moving toward free market Capitalism and it shows. The U.S. is rapidly moving the other direction. Government controlled entities like the Post Office, Social Security and Medicare are mismanaged. Taxpayers routinely bail out government incompetence. Now we are moving to where government takes over the foundation of this republic; freedom of individuals to make right or wrong decisions in the market place. For a free economy to work it must be allowed to make mistakes! We benefit from risk takers and learn from bad decisions. The government never makes mistakes? If someone in business breaks the law they are responsible to the people as well as the investors. Where in our Constitution is it stated that the Government can dominate individual business decisions whether it is a mom and pop business or a major corporation? Government control of the free market place will destroy this country and will have further impact on the Church because this Government today is moving to secularize our Judeo Christian foundation. Government control of free enterprise would be like humanist/secular control of the Roman Catholic Church, oops! Catholic hospitals will be required to perform abortions in the near future; religion is banned from the public square and ridiculed by the liberal government supporting media and entertainment industry. A fundamental goal of the current administration is to control business and diminish the freedom of religion. God help us we are losing our country and our Church!

Douglas, The Interstate Commerce Clause of the federal constitution is a fairly open authorization to do what the government is now doing. If it had been used better by the GOP, we would not be bailing anyone out. Government inaction has led to the current crisis. The goal of the current Administration has nothing to do with controling business and everything to do with cleaning up a big Republican mess. God help President Obama in doing so. If Catholic hospitals performed abortions in the late trimesters they would all be inductions, which would be preferable to either D&X (now illegal) and D&C (dismemberment in the womb). Before the delivery is induced, the mother would sign away parental rights and the child would be given the best NICU care. If it survives, it would be placed for adoption. This is not a perfect solution, but it is a better solution. Since this an option the Church is not taking, one could say it is responsible for those late term children lost to butchery outside its purview.

You are a bit behind Agnes Repplier. She wrote of the Boston carpenter who made the first stocks. He overcharged for them and was the first person to sit in them. "Oh how we wish" she wrote "that some of our insolent profiteers would be placed in stocks. We would listen to any number of three hour sermons".

The only problem with putting the pillory in the middle of Wall Street is...who is going to shame the pilloried? All the other greedy snakes in the grass? I think we should make it a national ''tour.'' Put the pillory on a flat bed truck, and park it for a week in every shopping mall in the country and furnish the populace with a fresh supply of rotten tomatoes (for target practice).

You forgot the mortgage brokers who sold ARM-A loans, most of which don't even reset until later this year and the next two years. When these toxic products were sold I both stayed away and predicted that they would cause the economy to implode - although no one gave this economist a microphone to say it.